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United States Persons

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area.

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the "Advisers Act").

THE WisdomTree BLOG

In financial markets, we search for relationships that might be connected in order to explain what’s driving returns. While it’s exciting to find these apparent nuggets of truth, market shifts may force them to disappear. WisdomTree explains how negative correlation between Japanese equities and the yen has shifted and how it affects investment decisions going forward.

It’s that of year when economists and strategists present their forecasts for the year ahead, however most of these forecasts leave little room for discussion of true outliers and surprises. In this article we highlight ten surprises that are unlikely, but still possible, for Japanese markets in 2018.

Japanese equities are a significant weighting for many global investors. However, the country’s unique economic attributes, including negative interest rates and a weakening currency, require a specialised investment solution. With a focus on export-oriented stocks, this one Index looks well placed to benefit from the weakness of the Yen and the improving strength of the Japanese economy.

The message from the current corporate results season is straightforward: Japan’s corporate earnings power continues to rise. This is due to both higher top-line sales growth as well as positive tailwinds from the exchange rate. Going forward, corporate guidance remains conservative, which in turn makes further upward revisions likely over coming quarters. All said, we maintain our call for 25% EPS growth in the current FY3/2018 (fiscal year ending March 2018), against the 13% now implied by the consensus. If realised, this implies a TOPIX level of 2,000 as a reasonable target over the coming six months, in my view.

In coming months, Japan’s monetary policy is likely to move back to center stage. This is not just because Prime Minister Abe will have to make a decision on the next Governor, but, more importantly, because the case for a change in the operational targets of the BoJ’s Yield-Curve-Control is growing stronger. Specifically, I expect a possible change in the BoJ duration target: a pivot away from targeting the 10-year yield to targeting the 5-year or 7-year yield could greatly enhance BoJ reflation credentials.

In the world of politics and policy making, Japan has become the envy of the world. The snap election got “Team Abe” re-elected with a strong majority and they will be controlling parliament with basically the same two-thirds super majority they had before. Stability, continuity and consistency of a strong pro-growth and pro-business agenda is poised to be rewarded with a growing “Japan Premium” in financial markets, that is, Japan’s equity markets deserve a higher PE multiple, in my view.

Japan’s upcoming election is poised to usher in a new era of policy competition and political accountability. Structural reform in general, supply-side reform in particular, is poised to accelerate if, as we suspect, Tokyo Governor Koike catapults herself into the never-imagined-before position of being both in power and in opposition: in power because she will continue to be the ruling Governor of Tokyo; and in opposition because she will be the leader of the second largest party in parliament (assuming current opinion polls are correct in their predictions).

A new force is gaining momentum in Japanese politics, led by Tokyo Governor Koike. Her new national party—Party of Hope—has just forged an election alliance with the opposition Democratic Party that could deliver as many as 120-180 out of 465 seats contested in the upcoming 22 October lower house election. Most importantly, "Koikenomics" is poised to re-energise the original pro-growth promise of "Abenomics". This is because Governor Koike has a long-standing record as a pro-business, pro-deregulation and pro-growth politician.

Japanese media are speculating that PM Abe may call a snap election, possibly as early as October 22. Although the Prime Minister himself has, so far, not commented on these speculations—and it is at the Prime Minister's discretion to dissolve Parliament—my sources suggest a reasonable probability of an early election. If so, the key implication for markets would be an almost certain change in Japan's macro policy mix: the probability of taxes going up in 2019 would rise, which in turn raises the odds that the BOJ will have to do more for longer to ensure against the inevitable recession that has always followed consumption tax hikes.

The boom in Japan’s inbound tourism is arguably the most tangible success story of “Abenomics”. Propelled by a steady stream of visa rule deregulation that started right in the first week of “Team Abe” moving into the Prime Ministers’ office in December 2012, inbound tourist arrivals have risen almost four-fold, from a 2012 monthly average of 697,000 to 2.6 million recently.1 In terms of money spent, since 2012 inbound tourist spending has accounted for the equivalent of 16% of the growth in consumer spending (excluding spending on rent).2 Although the absolute amount of tourist spending is still small at less than 1.5%3 of all consumption, its exceptional growth rate has had a most positive impact on domestic Japan, with especially high positive multipliers for regional economies.

The April-June GDP report suggests that the Japanese economy has entered into a sweet spot, with growth accelerating and broadening into all components of domestic demand. While the 4% annualised GDP growth rate marks peak slingshot acceleration, the details of the report fully verify our thesis that Japan has entered a self-sustaining domestic demand-led up-cycle. Looking ahead towards 2018/19, we maintain our call for 2-2.5% real GDP growth (and 3-3.5% nominal GDP growth). For policy makers, the margin for error on Yen strength is eroding quickly. Specifically, the Japan sweet spot is marked by the following factors.

Prime Minister Abe has presented his new cabinet. It is Abe's third leadership team since becoming Prime Minister in December 2012 and, like his previous teams, it is dominated by close and trusted allies. Moreover, the key positions did not change—Aso stays as Finance Minister, Seko as Economics Minister, and Suga as Chief Cabinet Spokesman. I expect this new cabinet will present a next supplementary budget of around Y5trn by October, focusing on added support for women, families and elderly.

Once a year, WisdomTree conducts a rebalance of its dividend-weighted stock indices which adjusts positions based on changes in relative valuations. We measure these relative valuations by examining stock price movements versus fundamentals in international markets. The primary variable we are utilising in our broad-based index strategies is a company’s Dividend Stream®.

After a period of relative calm and no new initiatives, Japanese politics is poised to move back into global headlines in the coming months. This is because Prime Minister Abe has now presented a concrete timeline for reforming Japan’s constitution: the goal is to clear all the necessary Parliamentary hurdles by next summer (2018) so that the required national referendum can be called before end-2018.

Our structural bull-thesis for Japan calls for an endogenous, self-sustaining domestic demand up-cycle that is driven by Japan’s private sector. Demographics is the key force – for households, the structural shortage of labour will be pushing up incomes and improving job security, thus creating purchasing power for a “new middle class”; and for companies, the scarcity of human capital will force a shift towards more capital-intensive business models, i.e. a structural up-turn in business investment to improve the quality of the domestic capital stock. Also, M&A activity is poised to pick-up, with the scarcity of human capital forcing fundamental industrial reorganization. Clear-speak—Japan’s productivity is ready for a positive super-cycle, which should translate into a structural up-turn in capital returns.

Christopher Gannatti

Associate Director of Research

Christopher Gannatti began at WisdomTree as a Research Analyst in December 2010, working directly with Jeremy Schwartz, CFA®, Director of Research. He is involved in creating and communicating WisdomTree’s thoughts on the markets, as well as analysing existing strategies and developing new approaches. Christopher came to WisdomTree from Lord Abbett, where he worked for four and a half years as a Regional Consultant. He received his MBA in Quantitative Finance, Accounting, and Economics from NYU’s Stern School of Business in 2010, and he received his bachelor’s degree from Colgate University in Economics in 2006. Christopher is a holder of the Chartered Financial Analyst designation.

Viktor Nossek

Director of Research

Viktor, who has over 14 years’ experience in research, joined the firm from Renaissance Asset Managers where he was Head of Research. Viktor provides macro research on various themes covering equities, commodities and fixed income. His research for WisdomTree in Europe offers investment strategies for the current range of Smart Beta UCITS ETFs as well as the Boost range of short and leveraged Exchange Traded Notes. Viktor has previously worked as a Research Analyst at BlackRock and Thomson Financial. He started his career as an Equity Strategist at Commerzbank, after he completed a Masters in Economics from Maastricht University, in the Netherlands.

Nizam Hamid

ETF Strategist

Nizam Hamid is an ETF Strategist for WisdomTree in Europe and has extensive experience in the European ETF market. Prior to this he was at C8 Investments, a systematic hedge fund, focusing on business development and quantitative strategies, before that he was a consultant at FTSE. From 2010 to 2012, he was Head of ETF Strategy and Deputy Head of Lyxor ETFs, at the time Europe’s second largest ETF issuer. Before joining Lyxor he was Head of Sales Strategy for the Europe and the Middle East at iShares in London. Prior to that, he was Global Head of ETFs, Portfolio and Index Strategy at Deutsche Bank from 1998 to 2008. He has also worked as a quantitative analyst in London and Tokyo for UBS, BZW and Bankers Trust / NatWest Markets. He holds a Degree in Economics from the University of Liverpool.

Nick Leung

Research Analyst

Nick Leung is a Research Analyst for WisdomTree in Europe. He is responsible for macroeconomic commentary and analysis, formulating investment strategies and trade ideas, as well as the maintenance of research collateral. Prior to joining in 2015, Nick was at Source, having completed his Master’s Degree at Imperial College London. During this time he was also involved in an ice-cream entrepreneurship project with Unilever. Nick holds a BA in Economics from the University of Nottingham.

Jose Poncela

Head of ETNs

Jose is Head of ETNs for WisdomTree in Europe and is responsible for managing WisdomTree’s Boost ETP platform and products. Prior to joining Boost/WisdomTree as a founding employee in 2012, Jose held positions as a structurer of strategic equity transactions at UBS and Nomura and qualified as an attorney working for a major US law firm. He holds an MBA from London Business School, Master in Laws from Fordham University in New York and legal and business degrees from Spanish universities.

Jason Guthrie

Director of Capital Markets

Jason Guthrie is Director of Capital Markets for WisdomTree in Europe. Guthrie is responsible for ensuring smooth trade execution across WisdomTree’s UCITS ETFs and Boost ETPs throughout Europe, Israel and Latin America. Prior to joining WisdomTree, Guthrie worked at Deutsche Bank within its ETF Capital Markets group. Before Deutsche Bank, he worked at Macquarie Bank as an Investment Executive based in Sydney, Australia. Jason holds a Bachelor of Commerce (Finance) from Macquarie University in Sydney.

Jesper Koll

WisdomTree's Head of Japan

Jesper Koll was appointed Chief Executive Officer of WisdomTree Japan on July 1, 2015. Over the past two decades Jesper has been consistently ranked as one of the top Japan strategists/economists, working as Chief Strategist and Head of Research for major U.S. investment banks J.P. Morgan and Merrill Lynch. His analysis and insights have earned him a position on several Japanese government advisory committees and Jesper is also one of the few non-Japanese members of the Keizai Doyukai, the Japan Association of Corporate Executives. He has written two books in Japanese, Towards a New Japanese Golden Age and The End of Heisei Deflation. After arriving in Japan in 1986 Jesper initially worked as an aide to a Member of Parliament. Jesper has a Masters degree from the School of Advanced and International Studies at Johns Hopkins University and was a research fellow at both Tokyo University and Kyoto University. He is a graduate of the Lester B. Pearson College of the Pacific.

Florian Ginez

Research Analyst

Florian Ginez is a Research Analyst for WisdomTree in Europe. He is responsible for market analysis, formulating investment and hedging strategies, trade ideas, as well as the development of products collateral and automating research processes. He also works closely with WisdomTree’s Quantitative Group on data analytics. Florian joined WisdomTree in 2016 after he started his career as an Assistant Portfolio Manager at Amaïka Asset Management in Paris, researching factor investing. Florian holds a Master’s degree from Reims Management School.

Vania Pang

Ms. Pang is responsible for Capital Markets and Investment Solutions functions of the Index and Quantitative Investment department at the ICBC Credit Suisse Asset Management (International) Company Limited. From 2012 to 2016, Ms. Pang was the Vice President of Corporate Strategy and Development, Asia Coal Limited, where she led the strategic mergers and acquisitions, capital raising and investor relations management. Prior to that, she was the Associate Director, Business Development of Crown One Asset Management Company Limited, responsible for sales and marketing of fund products. Between 2007 and 2008, Ms. Pang was Assistant Manager, Public Distribution Hong Kong (Equity Derivatives and Private Investor Product Sales) of RBS, handling sales and marketing of listed equity derivatives products. Before joining RBS, she was an anchor and reporter with the Cable TV and Hong Kong Economic Journal.

Ms. Pang holds a M.Sc. in Development Finance from The University of Manchester, a M.A. in Journalism and a B.A. in Business Administration from The Chinese University of Hong Kong.

Jack Jiang

Mr. Jiang joined ICBC Credit Suisse Asset Management (International) Company Limited as Senior ETF Specialist of Index and Quantitative Investment Department in November 2017. Before joining ICBC CS (International), Mr. Jiang was Director, Head of China in the client coverage team of S&P Dow Jones Indices, where he led the effort on sales and marketing in China. Prior to that, he was the head of the sales team of Dow Jones Newswire in China. Mr. Jiang had also worked for Platts, another subsidiary of S&P Global as Head of Beijing office. Mr. Jiang holds double degree, a Bachelor degree of Economy in International Economy and Business, and a Bachelor degree of Science in Automobile Engineering, with a minor degree in Computer Science, from Beijing Polytechnic University.

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